Franchise Due Diligence: The Franchise Buyer’s Best Friend
Franchise due diligence is not something that an inexperienced franchise buyer can adequately conduct on their own. While many prospective franchisees would argue that point, it’s a fact of life. Here’s why.
Buyers don’t necessarily or intentionally ever reject due diligence because they are stubborn or think they know better. They simply don’t know what or how to analyze a franchise opportunity. And why would they if never having done it before.
Franchise Due diligence is viewed differently by different buyers
Every person who has ever purchased a franchise will say that they conducted due diligence, and that’s true to some extent. But what does that really mean? For some, it means trusting the salesman, the broker, the consultant, or the president of the franchise brand. And interestingly enough, in some cases, it works out. For others, it means actually reading the many pages of a franchise disclosure document and the franchise agreement. While in the majority of cases they will not understand all that they’re reading, it’s a major step forward. And yes again, for many of them, things can work out. Take another step and the buyer will visit with an attorney and an accountant. This is would be a sophisticated buyer, but the effort doesn’t represent full investigation of the franchise and the buyer’s place within it.
Half way is not good enough when buying a franchise
Let’s assume that you ride your bicycle fifty miles a day, four days a week for exercise. You’re good at riding a bicycle. Your time is where you want it to be. Your friends and family are more than impressed with your commitment, your stamina, your fit condition. That’s all wonderful, but you won’t beat a Tour de France racer. And for most normal people, the reaction would and should be “so what?”
True franchise due diligence should be approached in the same light. Take the examples above concerning buyers. For those who take the word of the President of the franchise, that’s enough …. if it works out. For those who read, not just skim, the paperwork, well that’s due diligence too. And of course, if one takes all the material to an attorney and an accountant, what more could be done to complete due diligence? The answer is A LOT!
There is expertise in every field
Skip ahead to the buyer who includes their attorney and accountant in their due diligence and consider this question. Who is more likely to catch the red flags found in a disclosure document, your family attorney or a franchise attorney? Who is more likely to spot operating problems and relationship problems within a franchise system, your accountant or a trained eye who is always studying franchise systems? Keep in mind: the avid cyclist vs. Tour de France competitor. Get all the advice you can from franchise professionals, not just professionals.
Getting the best help you can find is no guarantee of success because once a franchise unit is opened, the world is new once again. But due diligence is a critical first step. For more information, read this detailed account on BUYING A FRANCHISE.